2Q24 profit forecast slightly exceeds market expectations

The company announced that 1H24's net profit to mother is 10.0 to 1.15 billion yuan, an increase of 8.95 to 1.045 billion yuan over the previous year; that is, net profit to mother for 2Q24 is 4.20 to 0.57 billion yuan, -29.5% to -4.3% year over year, and -27.6% to -1.7% month on month. 1H24's net profit attributable to shareholders of listed companies after deducting investment income from joint ventures and joint ventures was 6 to 0.75 billion yuan, an increase of 31.9% to 64.8% year over year; of these, 2Q24 was 0.271-0.421 billion yuan, -17.6% to +27.9% month-on-month. Due to obvious industry synergy, the price spread of filament gradually increased, and the company's performance forecast slightly exceeded market expectations.

Key points of interest

The industry collaborated to fix the price difference, and the profit of polyester filament increased significantly in June. Since late May, leaders in the polyester filament industry have adopted operations such as joint price increases and load reduction to guarantee the industry's profit level. As of July 12, the price difference of polyester filament POY/FDY/DTY in the industry reached 1,286/1,786/2,686 yuan/ton respectively, up 451/306/306 yuan/ton from before the price increase. We expect the company to maintain a certain level of profit during the 2Q24 off-season, and the profit performance will be good after the implementation of the new pricing model in June. The industry's new pricing model has clearly improved price spreads, and leading companies have all benefited. We believe that the leaders are motivated to continue this pricing model. The 3Q24 filament boom is expected to continue to improve. The third quarter is the traditional peak demand season. After downstream clothing orders begin, filament production, sales and shipments are expected to be released. As leaders continue to collaborate, we think the filament boom is expected to continue to improve. Furthermore, the company has a polyester filameter/PTA/MEG production capacity of 13.5/10.2/0.6 million tons, leading the industrial chain integration advantage. We believe that the company's main business is more flexible.

The refining and chemical sector, olefin and downstream profit levels remained low, and some varieties improved. The price of Brent crude oil in 2Q24 was between $80-90 per barrel, up 3.27 US dollars/barrel from the 1Q24 average price; overall refining profits were still low, but some chemicals improved. 2Q24 aromatic hydrocarbon profits are still good, with pure benzene/PX spreads of 354/343 US dollars/ton, respectively; Olefin profits are still low, but some polyolefin price differences such as LDPE/LLDPE/homopolyperylene have been slightly repaired month-on-month; price differences for chemicals such as ethylene oxide and butadiene have improved significantly. In addition, oil prices rose in 1Q24, and Zhejiang Petrochemical had inventory revenue. In 2Q24, we expect Zhejiang Petrochemical's profit to decline slightly month-on-month, and maintenance of some installations may have a certain impact on its performance.

Indonesia's refining and chemical projects are still in progress, and the company has plenty of room for long-term development. According to the company's announcement, the main construction content of the Indonesian project includes 10 million tons of oil refining, 2 million tons of PX, and 1.2 million tons of ethylene. The company continues to do 80% of this project. If the project progresses smoothly, the company has more room for long-term development.

Profit forecasting and valuation

Due to the reduction in the company's production burden, we cut our 2024 revenue by 7.6% to 86.68 billion yuan, keeping the revenue in 2025 basically unchanged. Due to increased industry synergy and improved competitive landscape, we raised our 2024/25 net profit by 8.0%/6.2% to 3.394 billion yuan/5.213 billion yuan. The current stock price corresponds to 10.8 times/7.0 times the 2024/25 price-earnings ratio. Maintaining an outperforming industry rating, the target price was raised 6.6% to 19.5 yuan, corresponding to 13.9 times/9.0 times the 2024/25 price-earnings ratio, with 28.6% upside compared to the current stock price.

risks

Long silk's boom is sluggish; Zhejiang Petrochemical's profits fall short of expectations; Indonesian project approval progress falls short of expectations.